As the real estate market shrank, mortgage broker Bill Cummings looked for ideas for a new line of work. He found the answer in his e-mail inbox.

In late November, Cummings launched St. Louis Daily Deals, an Internet business that sends heavily discounted retail deals from local merchants to e-mail subscribers.

“There’s a low barrier to entrance,” said Cummings, who bootstrapped St. Louis Daily Deals with his own money.

Cummings’ company and two other St. Louis startups, The Real Deal STL and Groupigg, have launched businesses copying the model set by Chicago-based Groupon, which earlier this month turned down a $6 billion buyout offer from Google. The services deliver 50 percent to 80 percent discounts on dining, spa visits, auto services and dozens of other retail products and services to those who sign up to receive daily e-mails on the offerings.

Typically the online company and the retail outlet split 50-50 what customers pay, generating instant cash for both the retailer and the online company. Customers have a limited time to buy the discounted offers, which usually post in the early morning hours and end at midnight. Coupons typically expire in a year.

The phenomenon is changing media and advertising habits, and retailers are divided on whether it’s a good thing. Some see the offers as a boom to top-line revenue, while others see them as a threat to profit margins.

St. Louis Daily Deals went live Nov. 22, after Cummings accumulated some 50,000 local e-mail addresses over eight months from his staff, Facebook advertising, a radio station e-mail blast, friends, and friends of friends. He estimated he spent about $45,000 to develop the software and hire a staff of a half-dozen people to write the advertising copy and handle the website, www.stlouisdailydeals.com.

Around the same time Cummings’ business launched, brothers Tim and Joe Brunette started The Real Deal STL (www.realdealstl.com), kicking off the venture with a $10 coupon for $25 worth of food at The Pasta House Co. Within a few days, Real Deal coupon sales generated $33,500, which the Brunettes split with Pasta House.

“We handed a pretty fat check to (Pasta House President) Kim Tucci in his office, and he called three other restaurants to tell them about the deal,” said Tim Brunette, who formerly worked in sales and marketing with Paramount Pictures. Joe Brunette continues to operate his construction business, Alliance Restoration & Construction.

Tim Brunette declined to discuss Real Deal’s startup costs or the size of its e-mail list, but he said the business has 14 employees.

Tucci said Real Deal gave Pasta House 70 percent of the coupon money, and Pasta House agreed to work exclusively with the company on two similar offers in 2011 that will give Pasta House 75 percent of the coupon money. “Groupon would have only split 50-50, and we couldn’t have agreed to that,” Tucci said.

Meanwhile, two other entrepreneurs, Joshua Jennings, who also owns Metro Asset Group LLC, and his partner, Aaron Ellis, unveiled their company, Groupigg LLC (www.groupigg.com), on Nov. 3. The business started partnerships with media outlets in four cities — Rochester, N.Y.; Sacramento, Calif.; Nashville, Tenn.; and the Quad Cities area of Iowa and Illinois. Groupigg plans to expand to at least 11 more markets by March 2011. St. Louis is not currently on that short list, although Ellis said he’s looking for a local media partner. Groupigg provides the software and support to the media outlets, which sell the half-price offers.

Groupigg has a staff of 16. Ellis and Jennings also declined to discuss their startup costs or the size of their e-mail lists.

The three St. Louis companies operate virtually, with no formal offices and many employees working from home.

Those startups join national competitors and local media outlets already operating in the half-price space created two years ago when Groupon launched its first deeply discounted offer to 400 people. Now Groupon has 40 million e-mail addresses and 3,000 employees, who serve 40 markets, including St. Louis. Groupon launched here in October 2009 and now has 345,000 area subscribers, said company spokeswoman Julie Mossler.

KMOX Radio started offering half-price deals prior to Groupon entering the market at stlouishalfoff.mediawebconnect.com. The St. Louis Post-Dispatch also runs a half-price site, upickem.stltoday.com, as does food and dining publication Sauce, hotsauce.saucemagazine.com, and lifestyle magazine Alive, StL Daily Fix, deals.alivemag.com. Groupon’s national competitors also have targeted St. Louis, including LivingSocial, based in Washington, D.C. and DealOn.com, of Somerville, N.J.

Groupon’s Mossler said her company has changed the way local businesses market themselves. “For years, there was this mystery about how to talk to customers on the Internet, and how to find new ones, and translate that into traffic,” she said. “Groupon has filled that gap.”

Charlie Downs, owner of local restaurants including Cyrano’s in Webster Groves, has used Groupon and its competitors.

“If I had full seats every night, there would be no reason to run these offers,” he said.

In November, Cyrano’s offered $20 of dining for $10 through Groupon. The offer generated 4,444 responses. That’s $44,440, of which Cyrano’s received $22,220 without any up-front costs. Downs said the restaurant has an average ticket of $39, so the promotion pays for itself.

Downs said thousands more people saw the offer, even if they didn’t purchase a Groupon, so it also works as a form of advertising. Cyrano’s had been growing at about 6 percent a year before trying Groupon. In the last year, the restaurant’s business grew 18 percent. “I’m good at what I do, but I’m not that good,” Downs said. “Groupon is the difference.”

Greg Hoffmann, managing partner with Chesterfield Sports Fusion, an indoor sports park, said instead of writing a check for conventional advertising, merchants agree to lower revenue by using online coupon deals. Chesterfield Sports Fusion customers are less likely to spend more than the value of the discount, and many purchasers already are regular customers, he said.

“Some people bought multiple Groupons and forwarded them to their friends, which was great,” he said. “Then they all came together and purchased a birthday party for a group. That was not our intent.”

Hoffmann said he would try a half-price offer again, if Sports Fusion could retain 75 percent of the revenue. He said he also might limit how groups redeem the coupons, a restriction many restaurants impose.

But as more merchants try the half-price coupons and more companies are making the offers, consumers might end up with more e-mail offers in their inboxes than they care to read, Hoffmann said.

“My concern would be merchants overusing these offers,” he said. “If everyone can benefit, it might be a long-term advertising medium. Right now, it’s like the Wild, Wild West.”

Company Coupon TipsThe St. Louis Better Business Bureau offers the following tips to companies participating in collective buying coupon programs:

Read and understand the contract being signed. The contract will specify what the site will perform for the business and what the obligations of the business are.

Do not rely on any oral promises made during the negotiation that are not included in the body of the contract.

Find out who is responsible for errors in published offers. Responsibility for errors should be clearly explained in the contract.

Understand all of the fees that your business will be charged for the promotion within the collective buying site.

rdesloge@bizjournals.com

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